The US Department of the Treasury has revealed how new renewable tax incentives will be paid for by a tax raid on the fossil fuel industry, eliminating subsidies for oil and gas companies.
Published yesterday (7 April 2021), the ‘Made in America Tax Plan’ report provides more detail and justification for a swathe of tax hikes, cuts and adjustments as Biden bids to recalibrate the US’ tax system in the wake of both COVID-19 and Donald Trump’s presidency.
It documents how proposed hikes in corporate taxes in the US, as well as cuts to swathes of fossil fuel subsidies – to the tune of some US$35 billion over the coming decade – will help incentivise renewable energy in the US.
The report stresses how the modern tax code contributes to climate change by “providing significant tax preferences and subsidies for the oil and gas industry”, which Biden’s tax plan would remove and redirect to “reposition the United States as a global leader in clean energy”. It cites research that suggests that the main impact of cutting fossil fuel subsidies would be on oil and gas company profits, with little impact on gas or energy prices in the US, nor on energy security in the country.
But while the report makes specific mention to the provision of ten-year extensions for both the production tax credit (PTC) and investment tax credit (ITC) for both renewable power and energy storage projects, including the provision of these credits under direct pay, there is no new detail regarding the rates at which these credits will be made available.
Late last month Biden’s ‘American Jobs Plan’, a raft of stimulus packages worth in excess of US$2 trillion, was unveiled, including promised extensions to ITCs for renewables.
The current ITC rate for solar projects is 26%, a rate which will remain in place until 2023 when it is currently scheduled to degress to 22%, before falling to 10% for commercial and utility-scale installs and removed entirely for residential solar projects.
There is, however, further commitment to the extension of the US 48C tax credit program, otherwise known as the Advanced Manufacturing Tax Credit, which provides an investment tax credit of 30% for US-based companies manufacturing clean energy products including solar modules and energy storage technologies, amongst other clean energy wares.
“The President’s corporate tax agenda is aimed at encouraging investment and American job creation, while also investing in priorities that are intended to benefit American families, such as infrastructure and climate resiliency. It will, in summary, create a corporate tax regime that is fit for purpose: an engine for economic growth, international cooperation, and a more equitable society,” the report concludes.
Liam Stoker, editor-in-chief, Solar Media
The US Treasury’s report, while offering little new detail regarding the specifics of ITC and PTC extensions, makes it abundantly clear; the US is pivoting away from fossil fuels in pursuit of a cleaner energy future, and no longer will O&G companies be able to bank on lucrative subsidies.
That is unquestionably a good move, and one that will mean a great deal for climate action in the US and any prospective restoration of its global leadership on the subject.
But what it will not do is make Biden’s American Jobs Plan any more palatable politically. Even before the Treasury report, commentators in the US had wrestled with the fact that a package of this size and of this nature is highly unlikely to receive support from across the aisle. Firing such a broadside against an industry that remains politically important in many US states could only entrench Republicans, and possibly even some Democrats in certain seats, further.
On this issue, Biden will without doubt be on the right side of history. It’ll take every inch of his and his administration’s political nous to ensure his plans are on the right side of a congressional vote.
The US Department of the Treasury published the report alongside an op-ed authored by Treasury Secretary Janet Yellen, published today in the Wall Street Journal. Within her piece, Yellen speaks of the Biden administration wanting to “change the game” played by the US’ current tax system, diverting funding towards both traditional infrastructure and “the more modern kind needed to run a digital economy (high-speed broadband networks and a clean energy grid)”.